GM, UAW face midnight deadline in talks

By Jui Chakravorty and David Bailey

DETROIT (Reuters) - The United Auto Workers union and General Motors Corp remained locked in negotiations Friday as the largest U.S. automaker headed toward a midnight deadline to either clinch a deal or face a possible strike.

Local UAW leaders were told to keep the 73,000 members who work at GM ready for a possible strike. Further word from the union's top leaders was expected at 10 p.m. EDT, two hours before the current labor contract was to expire.

GM and UAW declined comment on the progress of the talks.

The UAW on Thursday switched its tactics, singling out GM as its strike target.

Rival automakers Ford Motor Co. and privately held Chrysler LLC have signed contract extensions with UAW, clearing the way for their union-represented workers to continue working under the terms of their existing contracts even after the industry-wide deal on wages and benefits expires.

Strike preparations were under way at GM plants across the United States after the UAW's lead negotiator with GM, Cal Rapson, told members on Thursday that the union needs to see some "serious movement soon."

"Unless this happens, a strike might well be unavoidable," he said in a note to UAW members.

A person familiar with the UAW's position said the union was prepared to extend the contract with GM and continue talks into next week if there is progress on the central issue of health-care costs.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said he did not think there was much chance for either a strike or a settlement on Friday.

"I doubt they will settle tonight, maybe a 25 percent chance," Cole said. "This is a negotiation where they really need some hype to sell the contract to the rank and file. Absent some drama, it is a pretty tough sell."

The Detroit-based automakers lost more than $15 billion in 2006 and have cut more than 80,000 jobs through buyouts driven by plant closings. Given the industry's weakness, analysts have viewed a strike as unlikely.

RATCHETING UP THE PRESSURE

Wall Street analysts have been optimistic that the automakers will emerge from the talks with a deal that slashes health-care costs, but the UAW's threat to strike has injected a new tone of uncertainty.

The UAW, one of the most powerful unions in a U.S. economy where less than 10 percent of all private workers remain unionized, typically negotiates an agreement with the lead company first and then applies that deal as a pattern for the other two automakers.

The contract talks between the UAW and GM have been dominated by complex negotiations over the idea of cutting billions of dollars in GM's health-care expenses by funding a new stand-alone trust fund to pay for retiree care.

The two sides continue to spar over how many billions of dollars the automaker would offer for such a fund -- known as a voluntary employee beneficiary association, or VEBA -- and how large a discount the UAW would accept.

The person familiar with the UAW's stance said the union was seeking a job security guarantee in exchange for accepting a VEBA and could agree to funding of 65 percent to 67 percent of liabilities.

Ford and Chrysler LLC were also in talks with the UAW to establish such a trust, sources have said.

Chrysler negotiators planned to meet with the UAW through the weekend, a person familiar with the plan said.

Analyst Brian Johnson at Lehman Brothers said a settlement where automakers cover 75 cents of each dollar of their outstanding estimated liability for health care has been seen as the most likely outcome.

The automakers may seek outside financing rather than drawing down cash balances to fund the VEBA, Johnson said.

UAW leaders made arrangements to walk picket lines if a labor agreement were not reached by the midnight deadline.

"I am preparing to strike," Chris "Tiny" Sherwood, president of UAW Local 652 in Lansing, Michigan, told Reuters on Friday morning. "I am getting assignments put out."

UAW Local 160 in Warren, Michigan, has posted strike duty instructions, while UAW Local 599 in Flint, Michigan, has asked workers to sign up for picket duty and was holding strike information classes, according to Web sites for both locals.

"We will wait for the call on (the strike) and do what they ask us to do," Local 599 President Bill Jordan said.

(Additional reporting by Poornima Gupta, Dave Rogers and Kevin Krolicki)

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